PREFACE. 


Tlie  object  of  the  following  pamphlet  is  to  induce  inquiry 
and  investigation  in  order  to  ascertain  what  policy  is  best 
adapted  to  make  our  railroads  what  they  should  be,  the  great 
arteries  of  circulation  for  the  commerce  and  industry  of  the 
country.  The  system,  under  its  present  variously  conducted 
and  divided  plans  of  management  and  mismanagement,  has 
attained  to  a degree  of  development  which  renders  its  proper 
maintenance  a national  necessity,  and  recent  events  show  that 
in  various  quarters,  and  especially  in  some  of  the  Southern 
States,  it  is  now  in  danger  of  collapsing,  if  it  may  not  be  said 
to  have  already  done  so.  The  views  which  I now  publish  are 
designed  to  open  up  a solution  to  the  question,  and  to  suggest 
one  method  at  least  by  which  our  system  of  railroads  may  be 
effectually  maintained  with  increased  convenience  to  the  public 
and  profit  to  the  nation.  To  what  extent  the  scheme  proposed 
is  applicable  to  individual  States  depends  much,  of  course, 
upon  their  geographical  position ; but  that  many  of  them 
should  adopt  some  decisive  measures  upon  the  subject  is  a 
matter  too  obvious  to  be  discussed. 


49940 


The  Railway  Economy  of  the  Future. 


/ 


The  construction  and  maintenance  of  railroads,  to  facilitate 
internal  communication,  form  one  of  the  principal  requirements 
of  commercial  enterprise  in  any  country ; and  in  a country 
where  commerce  and  industry  is  every  day  developing  itself 
with  such  rapid  strides,  and  upon  a scale  of  such  magnitude  as 
in  this,  the  necessity  of  a properly  systematized  means  of  inter- 
course between  the  centres  of  trade,  and  a suitable  distribution 
of  its  tributary  channels,  together  with  a well  organized  and 
harmonious  system  of  management,  is  no  less  important  than 
the  existence  of  the  means  of  intercourse  itself,  and  cannot  be 
over-estimated. 

Within  little  more  than  a quarter  of  a century,  our  system  of 
inter-communication  has  undergone  a complete  revolution ; rail- 
ways have  taken  the  place  of  common  roads,  and  the  cramped 
and  dragging  old  stage-coach  has  given  place  to  the  commodious 
“ palace  car.”  It  is  not  too  much  to  say,  that  thousands  travel 
now  where  twenty  travelled  in  the  days  of  stage  coaching. 
This  is  indeed  a great  gain,  but  what  I propose  to  consider  in 
this  paper  is,  whether  the  convenience  of  the  public  is  provided 
for  to  anything  like  the  extent  that  existing  circumstances 
would  permit,  and  also  whether  the  present  travel  and  traffic 
would  not  be  largely  increased,  and  the  value  of  these  modern 
appliances  be  enhanced  by  making  the  convenience  and  interest 
of  the  public  the  first  consideration  in  their  management. 

According  to  the  present  system,  the  railroads  are  the  private 
property  of  different  companies,  who  made  them  as  commercial 
speculations,  and  over  which  the  Government  and  the  public 
exercise  but  very  limited  control.  The  special  powers  granted 
to  railroad  companies  are,  the  right  to  become  corporate  bodies. 


4 


the  power  to  acquire  such  lands  as  are  requisite  for  the  purpose 
of  constructing  and  working  their  lines,  and  to  charge  such 
rates  for  the  conveyance  of  freight  and  passengers  as  they  may 
think  proper,  and  in  this  respect  leaving  it  entirely  at  the  dis- 
cretion of  those  who  control  them  to  discriminate  in  favor  of  or 
against  any  locality. 

The  plea  upon  which  these  powers  are  granted  is  always  a 
prominent  feature  in  the  preamble  and  lobbying  arguments 
used  in  support  of  a railroad  bill.  Public  utility  is  represented 
as  the  chief  object  of  the  enterprise ; but,  as  a general  result, 
the  very  public  that  founds,  fosters  and  sustains  it,  is  that 
which  is  least  served  by  it  in  its  operative  capacity.  In  State 
legislation,  under  which  j urisdiction  these  projects  obtain  exist- 
ence, little  or  no  investigation  is  made  into  the  merits  and 
truthfulness  of  this  plea.  Its  simple  assertion  is  too  often  taken 
as  its  demonstration,  and  a charter  issues  which  is  often  but  a 
bait  to  catch  the  unwary,  and  encumber  the  industry  of  the 
State  with  liability  from  which  no  adequate  benefit  is  derived. 
The  idea  seems  never  to  occur  that  there  should  be  some  legis- 
lation Avhich  would  lead  upon  the  projection  of  a line  of  rail- 
road to  an  examination  of  the  project  by  a competent  commis- 
sion, to  determine  upon  its  necessity  before  powers  are  granted 
to  carry  it  into  execution ; and  also  to  provide  for  an  intelligent 
inspection  of  the  work  of  its  construction  and  proper  mainte- 
nance upon  completion.  Such  a commission  it  seems  to  me  is 
indispcnsible,  but  its  usefulness  depends  upon  its  efficiency,  and 
therefore  care  should  be  taken  that  it  is  composed,  not  of  a set 
of  political  “ bummers  ” as  form  many  similar  commissions  at 
the  present  time,  and  who  have  no  conception  of  the  duties 
which  they  affect  to  perform,  but,  of  men  who  make  the  con- 
struction of  railroads  their  lifetime  study  and  occupation,  and 
whose  reputation  as  such  would  be  a guaranty  of  the'reliability 
of  their  opinions. 

It  has  often  been  a matter  of  Surprise  to  me,  and  especially 
latterly,  that  some  of  our  Southern  States^  which  are  carrying 
so  heavy  a burthen  of  railroad  obligations,  do  not  find  some 
method  of  exercising  a more  efficient  surveillance  in  this  matter 


5 


by  imitating  the  policy  of  other  States  in  their  constitution  of 
boards  of  public  works.  The  State  of  Alabama  for  an  instance 
has  endorsed  bonds  to  aid  in  the  construction  of  railroads  since 
the  late  war  to  the  amount  of  thirteen  or  fourteen  millions  of 
dollars,  and  is  committed  to  the  endorsement  of  at  least  as 
much  more,  but  I do  not  find  that  her  interest  is  guarded  in 
any  degree  commensurate  with  her  liability,  by  representation 
or  direction  in  the  operations  of  the  boards  controlling  them. 
Being  powerless  to  avert  the  disaster  of  bankruptcy  which  is 
now  imminent  to  half  a dozen  of  her  newly  projected  lines,  she 
must  accept  the  evil  and  seek  to  remedy  it  when  it  comes. 

At  the  present  time  there  are  in  operation  about  fifty  thous- 
and miles  of  railroad  in  the  United  States,  which  cost  over 
$2,000,000,000,  or  over  $40,000  per  mile,  nearly  double  what 
it  might  have  been  built  and  equipped  for  upon  a cash  or 
healthy  financial  basis.  The  returns  for  this  investment  have 
not  by  any  means  been  such  as  might  have  been  expected  from 
capital  so  laid  out,  and  the  low  prices  at  which  all  railroad 
stock  is  now  quoted  shows  that  investment  in  such  under- 
takings is  not  regarded  with  favor ; in  fact  a glance  at  the 
stock  lists  would  justify  the  conclusion  that  the  entire  railroads 
of  the  country  might  be  purchased  at  a very  large  discount 
upon  the  aggregate  outlay  for  their  construction. 

Had  the  system  of  railroads  been  laid  out  originally  on  a 
comprehensive  national  plan,  we  might  ere  now  have  had  an 
organization  in  operation,  extending  railroad  communication 
and  its  influence  into  every  part  of  the  land,  without  having 
expended  one-half  the  amount  already  invested  in  the  existing 
lines.  Much  of  which  has  been  and  is  still  being  wasted  in  the 
establishment  of  rivalries  and  competitions  from  which  the 
public  have  reaped  but  a doubtful  and  at  most  a short-lived 
benefit,  while  the  absorption  of  capital  to  sustain  them  has 
crippled  the  remunerative  capacity  of  the  whole. 

A system  of  railroads,  judiciously  planned,  provides  for  a 
complete  inter-communication  and  spread  of  population,  thereby 
establishing  new  centres  of  commerce  and  industry  for  the 
thorough  development  of  the  resources  of  a country,  and  when- 


6 


ever  this  is  done,  the  entire  object  of  the  organization  is  attained, 
the  full  capacity  of  the  capital  employed  is  utilized,  and  financial 
success  the  more  thoroughly  insured. 

Upon  referring  to  the  returns  of  the  two  previous  years,  I 
find  that  the  nett  earnings  of  one-half  of  the  railroads  in  the 
country  amount  to  about  8 per  cent.,  and  the  other  half  will 
average  about  3 per  cent,  on  their  aggregate  outlay ; but  with 
the  exception  of  a comparatively  few  cases  this  is  absorbed  by 
the  interest  upon  their  bonded  debt,  and  therefore  seldom  finds 
its  way,  in  the  form  of  dividends,  in  the  pockets  of  the  stock- 
holders. 

It  is  obvious  that  this  enormous  outlay  has  not  proved  bene- 
ficial to  the  stockholders : let  us  now  see  if  the  public  in  gen- 
eral have  gained  such  advantages  as  may  be  considered  suffici- 
ent to  convert  the  pecuniary  loss,  that  has  been  sustained  by 
individual  subscribers,  into  a national  gain. 

There  is  no  doubt  that  we  can  travel  with  a speed,  comfort 
and  security,  and  I might  add  a cheapness,  formerly  unknown ; 
but  it  is  equally  clear  that  what  has  been  accomplished  in  this 
respect  falls  very  far  short  of  what  might  be  done  were  the 
system  of  railroad  management  carried  out  in  harmony.  The 
same  may  be  said  in  regard  to  the  transmission  of  merchan- 
dise. How  often  is  it  the  case  that  where  companies  cannot 
agree  to  work  together  for  the  public  good  in  the  arrangement 
of  their  schedules,  the  traveling  community  is  made  the  victim 
of  their  disagreements ; and  witness  also  the  studied  and  com- 
bined system  to  extort  local  tariffs  of  freight  and  passenger 
rates,  a system  of  imposition  as  inconsistent  as  it  is  antagonistic 
to  the  broad  development  of  industry  and  trade. 

These  are  only  a few  of  the  evils  the  public  have  to  bear  in 
consequence  of  the  mistaken  notions  of  divided  interests  in  the 
proprietorships  of  railroads  and  the  false  idea  that  the  interests 
of  the  stockholders  and  of  the  public  are  at  variance. 

The  desiderata  involved,  it  appears  to  me,  can  only  be  ac- 
complished by  uniting  all  the  railroads  of  the  country  under 
one  general  management,  to  form  either  a separate  branch  of 
the  public  service  or  to  be  administered  by  an  independent 


commission  or  directory.  The  interests  being  national,  the 
management,  to  be  effective,  must  be  national  also. 

It  would  then  be  the  duty  of  the  Government  to  see  that  the 
railroad  system,  which  is  ostensibly  formed  as  a plan  for  the 
advancement  of  the  general  industry  and  commerce  of  the 
country,  is  fitly  arranged  and  efficiently  maintained. 

For  the  Government  to  assume  the  control  of  the  railroads 
no  money  would  be  needed.  It  has  already  been  shown  that 
the  average  nett  earnings  would  form  a dividend  of  5J  per 
cent,  upon  the  aggregate  cost,  and  the  Government  might  issue 
railroad  stock  bearing  guaranteed  interest  at  5 per  cent,  in  ex- 
change for  that  held  by  stockholders,  and  which  would  doubt- 
less be  acceptable  also  in  lieu  of  railroad  bonds  now  in  the 
market.  The  amount  of  this  stock  to  be  given  in  exchange 
for  either  should  be  fixed  by  a competent  tribunal,  who  should 
base  their  calculations  upon  the  price  of  the  various  stocks 
through  a period  which  would  enable  it  to  arrive  at  an  equita- 
ble value.  The  new  stock  would  be  proportionately  equal  in 
value  to  any  other  Government  stock,  and  railroad  stock  and 
bondholders  would  receive,  in  return  for  their  fluctuating 
shares,  securities  whose  value  would  vary  no  more  than  any 
other  form  of  Government  securities. 

I think  I might  safely  venture  to  assume  that  the  amount 
of  this  issue,  requisite  to  acquire  possession  of  all  the  railroads, 
could  not  exceed  three-fourths  of  their  aggregate  cost,  and  if 
the  returns  which  are  now  made  are  no  more  than  sustained 
they  would  be  ample  to  provide  for  the  payment  of  the  interest, 
as  well  as  to  form  a surplus  fund  for  the  extension  of  lines 
throughout  the  country.  But  I apprehend  that  the  returns 
would  be  largely  increased.  Indeed,  it  is  quite  impossible  to 
foresee  to  what  extent  the  facilities  that  could  be  afforded,  and 
the  more  efficient  organization  which  could  be  instituted,  would 
increase  the  revenue  of  the  Government. 

A considerable  diminution  of  the  average  passenger  and 
freight  tariff  per  mile  might,  I think,  be  applied  advantageously. 
A minimum  rate  could  thus  be  attained  and  universally  charged. 
Speed  classes  could  be  organized  in  freight  as  well  as  in  pas- 


8 


genger  trains,  and  made  to  operate  in  connection  with  each 
other  with  far  greater  precision  than  is  possible  under  the 
present  system.  A slow,  fast  and  express  freight  system  could 
be  arranged,  and  express  monopolies  suppressed  to  the  very  great 
convenience  of  the  public  and  benefit  to  the  general  business 
of  the  roads.  The  public  would  speedily  reap  the  advantages 
of  a complete  and  harmonious  system  of  management  in  the 
augmented  facility,  comfort  and  economy  of  transportation 
which  would  ensue,  while  the  general  cost  of  operating  might 
be  greatly  reduced.  Thus  trade  would  be  benefitted  enormously, 
and  the  effect  upon  the  money  market,  of  at  once  converting 
$1,500,000,000  of  sunk  capital  into  convertible  securities, 
would  be  a stimulus  of  immense  value  to  the  country. 

The  only  objection  which  I can  see  that  is  likely  to  be  pre- 
sented to  this  scheme  is  that  which  opposes  the  extension  of 
the  civil  service  and  increase  of  Government  patronage,  on  the 
ground  of  party  corruption.  But  this  is  obviously  a partisan 
view  of  it,  and  does  not  attack  the  practicability  or  merit  of 
the  proposition.  It  must  be  understood  that  it  is  based  upon 
an  honest  and  judicious  administration  of  the  Government,  for 
without  this  the  Government  is  itself  a failure. 

ENGINEER. 

Alabama,  January  1,  1872. 


